Demat Account Fees & Charges

Published on Thursday, May 23, 2019 by Chittorgarh.com Team | Modified on Tuesday, November 16, 2021

Demat is short of dematerialize whose literal meaning is to become free of physical substance. In the stock market, demat meaning replace physical share certificates with a paperless computerized record.

Demat account is an account with an authorized demat service provider. It holds shares and securities in digital form. The demat account is similar to the bank account but instead of keeping money, demat account holds company shares, mutual funds, bonds etc. in digital format.

During online trading and investing, all the securities bought by an individual in equity, bond, government securities, ETF (Exchange-Traded Funds), and mutual funds are held in the Demat account. The securities in electronic form are accessible online across the world and anytime. Investors who want to invest and trade in Indian Stock Market are mandatorily required to have a Demat account.

NSDL and CDSL are the companies authorized by Government of India to hold securities in electronic format. They are called Depository. They have members (depository participants or DP) who provide the demat account related services to the investors. DP's are intermediaries between the customer and the central depository. Usually, all stock brokers are DP of NSDL or CDSL or both. There are a total of 866 DPs (289 NSDL, 577 CDSL) offering demat account facility.

For providing demat account services, the DPs charge fees from customers. Each broker charges these services at different rates.

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Demat Account Benefits

1. Holds shares in electronic form eliminating the threat of losses due to theft, damages etc.
2. Provides legal ownership of shares without any paperwork.
3. Makes the trading process easy.
4. Provides an opportunity to trade across different asset classes.
5. Safeguards the securities from theft, mutilation and misplacement.
6. Eliminates stamp paperwork and makes the transaction process easy and cost-effective.
7. Reduces paperwork for transfer of securities.
8. No geographical barriers for trading.
9. Reduces transaction cost.

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Demat Account Types

In India, there are two types of demat account; Normal and BSDA Demat account. BSDA demat account was introduced to reduce the maintenance cost of demat account for small investors. Here are the high-level differences:

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Demat Account Charges Meaning

The demat account charges are collected by depository participants for offering various services. Here is the list of demat account transaction charges:

1. Account Opening Charges
2. Account Maintenance Charges
3. Debit Transaction Charges
4. Off-Market Debit Transaction Charges
5. Pledge Creation Fees
6. Pledge Invocation Fees
7. Dematerialisation Charges
8. Rematerialisation Charges
9. Modification in Address, Email, Mobile and Bank Updation Fee
10. Delivery Instruction Slip Charges
11. Account Statement Charges

Here is the details of all the applicable demat account fees & charges:

1. Account Opening Charges

Brokers charges a nominal fee for opening a demat account with them. This is a non-refundable fee charged in advance at the time of account opening.

Most online stock brokers offer free account opening either to all customers or through special promotions.

If you open 3-in-1 account (savings account, demat account and trading account), the demat account opening changes are included in the 3-in-1 account opening charges.

Brokers like Zerodha charge Rs 100 demat account opening fee.

2. Account Maintenance Charges (AMC)

AMC is the yearly fee charged by the broker to maintain the demat account. AMC can be between Rs 300 to Rs 1000 per annum depending on the value of holdings and stockbroker.

There are 3 major fee structure followed by stock broker for AMC:

1. Fixed Yearly AMC in which customer pay a fixed fee every year to the broker. Most brokers offer this model. Some brokers wave the 1^st years AMC as a special offer.
2. Zero AMC Demat Account (Lifetime free AMC) in which customer doesn't pay any AMC. Some brokers keep a small refundable deposit while others charge onetime non-refundable fee for this.

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Check Zero AMC Demat Accounts for more detail.

3. Debit Transaction Charges

When you sell a share online, the shares are debited from your demat account and credited to the buyer's account. The debit transaction means the debit of securities from the demat account.

Customer pay a debit transaction fee for every withdrawal of shares from the demat account. Some broker charge the flat fee (i.e. 9.50 per transaction) while others charge based on the % of the transaction value.

4. Off-Market Debit Transactions Charges

An off-market transaction (sell) is basically selling of securities on an already specified price and conditions between the seller and buyer. In this mutual settlement between the parties, stock exchange and Clearing Corporation are not involved. Off-market trade can be placed for the following reasons:

1. Transferring ownership of shares.
2. Gifting shares to any family member.
3. Transferring shares between two demat accounts.
4. Shifting of securities between a sub-broker and a client.
5. Transactions in unlisted securities.

Customer pays a fee for every off-market debit transaction.

5. Pledge Creation Fees

In the practice of pledging the shares, investors put the equity shares available in his demat account as collateral against loans. After the creation of pledge, pledgee (whom a pledge is given) has the rights to hold the shares till the pledgor pays the dues. In the default case, this pledge is used to recover the dues.

Every time a customer put shares in his demat account on pledge, the broker charge pledge creation fee.

6. Pledge Invocation Fees

In default case of pledge where pledgor is unable to repay the loan to the pledgee, as per the underlying agreement, a pledgee will submit an instruction slip for initiating invocation of the pledge to DP. In the case of invocation of a pledge, the shares are transferred from the pledgor to the pledgee.

7. Dematerialisation Charges

Dematerialisation is processes through which an investor can convert securities paper certificates in electronic form to hold them in demat account. The broker charges a fee to convert the shares. Some broker change flat per certificate fee while other charge based on the value of the securities.

8. Rematerialisation Charges

Rematerialisation is the reverse process of dematerialisation. All the securities in the dematerialisation form can also be converted back to physical certificates with rematerialisation process.

The client has to request for rematerialisation process to the depository participants with whom he has a demat account. Broker charges a fee for Rematerialisation and courier cost to the customer.

9. Modification in Address, Email, Mobile and Bank Updation Fees

Any modification in address, email, mobile and bank detail of demat account should be informed to DP along with the required documents. These changes are informed by the depository participant to different companies. This service is charged for per modification request with DP.

10. Delivery Instruction Slip Charges

A Delivery Instruction Slip (DIS) is a form authorizing the DP to debit the shares from BO's account and transfer the shares to another account mentioned in the stated slip. In case you misplace or lost the delivery instruction slip, you have to inform the depository participants immediately in writing form for cancellation and re-issuance.

11. Consolidated Account Statement

Consolidated Account Statement (CAS) provides great convenience to investors as it shows a consolidated view of the demat account containing all the information regarding his entire holdings. This gives an insight on how to track the performance of the different securities and the financial condition of the company.

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Demat Charges Example

Zerodha is the leading stock broker in India offering discount stock brokerage services. Zerodha also provide demat account through its membership with CDSL. Below are the demat charges of Zerodha:

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Demat Account Fees Comparison

Compare demat account charges to find out which broker is offering demat account lowest transaction charges:

• Zerodha vs 5paisa
• ICICI vs HDFC Demat Account

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Conclusion

Demat charges are among the top expenses for stock market investors. Most customers focus on trading brokerage & taxes but ignore demat charges while choosing the stock broker. This results in unexpected surprises. It's important for stock trader and investor to understand the demat charges. Especially the investors should be aware of Demat AMC, Debit transaction charges and pledge charges.